Log in/Register

Please log in or register to continue. Registration is free and requires only your email address.

Log in

Register

Emailrequired

PasswordrequiredRemember me?

Please enter your email address and click on the reset-password button. You'll receive an email shortly with a link to create a new password. If you have trouble finding this email, please check your spam folder.

To continue reading, please log in or enter your email address.

To access our archive, please log in or register now and read two articles from our archive every month for free. For unlimited access to our archive, as well as to the unrivaled analysis of PS On Point, subscribe now.

Jeffrey Frankel, a professor at Harvard University's Kennedy School of Government, previously served as a member of President Bill Clinton’s Council of Economic Advisers. He is a research associate at the US National Bureau of Economic Research, where he is a member of the Business Cycle Dating Committee, the official US arbiter of recession and recovery.

The very concept of "counter-cyclical fiscal policy" is conspicuous by its absence in the American popular press, even in debates among leading economists and politicians. This is a serious loss to our public discourse.

Most private citizens assume that their own home economics also applies to the national economy. This leads to truisms exchanged around the water cooler, such as "you can't spend more than you make" or "We're just borrowing from China." Some of us know better - that in a national economy everyone's spending is someone else's income, and money is lost from the economy as a whole only in defaults. We need to be taking this message to the wider public.

Most discussions in US media of debt and deficit contain no acknowledgment at all that Keynesian principles even exist. Even the Friedman criticism that governments can't be trusted to follow the disciplined side of fiscal policy are ignored.

One of the very important observation of the paper, “Monetary Science, Fiscal Alchemy”, is that unlike competitive households the government need not choose sequences of control variables that are consistent with the budget constraint; similarly for fiscal authority the value of a dollar debt depends on the expectations of fiscal decisions in the future and these expectations depend on the tax rule that fiscal authority announces. We thus have a myriad of fiscal expectations that are anchored with intertwined linkages with the monetary policy regime, which also cannot target inflation with a policy instrument that could be consistent with any sequence of price levels.